Niche TV: U.S. firm targets Japan with specialty channels

CBS.MarketWatch.com

And not just because the company is American and happens to package Japan's one and only women's TV channel, SheTV, carried on more than 45 cable systems. Global Japan also fills a void with its SF channel for Japanese science fiction enthusiasts.

Even more unusual, both channels are packaged not in Tokyo but in New York City. Both blend Japanese and international programming. The production staff of Global Japan, a privately held U.S. company, localizes the shows by using Japanese hosts and audio tracks recorded to make them more appealing to viewers here.

"A lot of what we are doing technically wasn't feasible five years ago," said Global's managing director Thomas Tercek.

"With satellite technology where it is now,? he said, ?we're actually able to put together a very customized channel in New York that's completely presented in a local context for viewers in Japan."

What's more, the company is readying phase two: The launch next month of shetv.com and sftv.com, Web sites that will support the marketing of the channels.

Given that Japan's cable and satellite industry is in flux and that the Internet has only really started to take off in this country over the past year, Global Japan's experiment is bold.

TV guidance

In the U.S., cable and satellite systems were built gradually. As marketing and programming evolved with the technologies, audience sizes grew. In Japan, though, the Ministry of Posts and Telecommunications essentially did not allow large multi-system operators - especially not ones with foreign affiliations - until NHK Satellite, an affiliate of Japan?s government-backed broadcaster, launched in 1989 and a commercial station, Wowow, followed in 1991.

When restrictions were lifted in 1998 to allow more players, the Japanese viewing audience still had a limited menu of local news and reruns, sports, and movies - no Disney Channel, virtually no first-run series.

The cable and satellite technology was fine. Lacking was the marketing know-how needed to turn on a Japanese audience with scant multi-channel viewing experience.

So while an American cable operator like Time Warner
TWX, +0.40%
can boast 20 million viewers, Japan's largest cable operator, Jupiter Telecommunications, lays claim to just 500,000 subscribers. Its closest competitor, Tokyu Cable, has signed up nearly 60,000 customers. Titus Communications, the only other multi-system operator in Japan besides Jupiter right now, has roughly 50,000.

That?s surprisingly thin for a country with 45 million households and many more TV sets. Part of the problem is the industry is carved up into hundreds of small, independent and cash-strapped operators. Some have as few as 250-300 subscribers.

Inefficiencies in the market and the inability of many local companies to afford the huge investment necessary to create up-to-date digital networks has presented an opportunity forU.S. companies to accelerate their global drive into the cable and Internet businesses in Japan.

Convergence

Last month, Microsoft
MSFT, -0.71%
acquired a 60-percent stake in Titus. And now Titus is in merger talks with Jupiter, which is 40-percent owned by Liberty Media, a unit of AT&T
T, +0.38%
Their push is about turning current cable networks, which are now mostly used to broadcast TV programs, into two-way, interactive pipelines.

Upgrading network systems would give the cable companies a technological advantage in quickly complementing their broadcast programming menus with cable Internet services. Allowing subscribers to surf the Web using cable television lines at speeds up to 25 times faster than the speediest dial-up modems is gaining popularity among Japan?s 17 million Internet users.

But companies would do well to keep in mind the hubris of some Western broadcasters that launched in Japan thinking their marketing savvy and programming content would lock in local audiences. What some of them lacked was a localized television product that addressed the lives of Japanese directly.

Certain mistakes were more costly than others. Hughes Electronics Corp. of the U.S., for example, threw in the towel in March, when it agreed to sell big-money-loser DirectTV Japan to its rival Japanese satellite competitor SkyPerfecTV.

That gives SkyPerfecTV - itself a merger product of PerfecTV and News Corp. affiliate
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JskyB - two, count em', two million subscribers. A grim sales picture that emerges from this still paltry base, particularly since competition with DirectTV had driven down the prices of programming packages.

Terrestrials

Competition hasn?t dried up: Next year satellite services backed by Japanese network TV broadcasters will be free of charge (after subscribers buy a dish and decoder box). Sure marketing will matter, but content - localized content - will truly be king.

"It will be supported totally by advertising revenue, just like terrestrial TV," said Hironobu Sawake, senior media analyst ING Baring Securities. "Of course, a lot of their success depends on whether they're going to present aninteresting mix of programming or just the same sort thing as free TV now. Just because the picture is prettier through digital doesn't mean people will watch.?

Gender genre

What does that mean for content providers like the crew at Global Japan?s SheTV, which bills itself as a resource for a new generation of women? The programming - such as health, travel, child rearing, fashion, investing and personal finance - sensibly covers the bases.

Yet even though more and more cable operators sign on to carry the channel each month, the cable demographics till now have shown women to be a virtual non-entity.

?Is there a market out there for women viewers - I think there is, but the problem is the satellite and cable companies haven't done a good job of marketing themselves,? Herman said. ?And to put all this burden of creating a market for women on the back of a single small channel, it's really tough."

Global Japan?s answer to the marketing conundrum: the Internet.

On community-oriented Japanese portals, Global Japan plans to have Web sites up and fully running in June. SheTV and the SF channel ?were conceived from the beginning to be cross-platform networks," said managing director Tercek. "Every Web page is dynamically linked to the channels and introduces related programming.?

Catching the eye of Japanese women who go online is a big part of advertisers? online budgets. Last year Japanese advertisers pumped 24.1 billion yen ($223 million) overall into online ad spending - more than three times what was spent the previous year.

"Working with advertisers for our site will give us a chance to establish valuable relationships which can then cross over to TV," said Tercek.

Nancy Lee, president of Global Japan, says that more commercial sponsors are coming on board, adding to revenues.

"Sponsors would say, 'no contracts until you hit the million subscriber mark --we've hit one million and gone over it now," said Lee, who has worked in broadcasting in Japan for several years. Her New York-based production company, Highly Enterprises, creates programming for the Japanese market including two popular shows on Japan?s NHK satellite broadcasting channels. SEE THE SOAPBOX INTERVIEW.

Rounding out the management team of Lee and Tercek, who was previously a creative director for MTV Networks, is CEO Andrew Tow. Tow, a former head of Century Communications Corp.?s cable TV division, is focusing on strategic partnerships with Japanese companies and institutions.

?The likelihood is that the next round of investors will be predominantly Japanese,? he said.

Meanwhile, Global Japan is currently negotiating in six new markets - Thailand, Malaysia, Hong Kong, Taiwan, Singapore and Indonesia - to launch genre channels there spearheaded by SheTV.

"We're building a pan-Asian cross-platform broadcasting company with focused Web site portals that capitalize on localizing product for a customized fit," said Tow. "We're not talking about a simple satellite feed from New York with subtitles tacked on."

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